Question

Air Atlantic is considering a new service between two cities. Its existing planes, each of which has a capacity of carrying 240 passengers, could be used for one flight a week with fixed costs of $30,000 and variable costs amounting to 50% of the ticket price.

(a)   Air Atlantic is thinking of charging $200 per ticket. How many passengers will the airline need on each flight to break even? Find the break-even point algebraically and by using an EXCEL graph. Attach the printout or copy your EXCEL graph into your assignment submission.

(b)   Based on your analysis from part (a and without any additional calculations, will Air Atlantic realize a profit or a loss if 240 seats are sold for a flight? Does the break-even number of passengers from part (a) seem reasonable? Explain briefly.),

(b) What price per seat should Air Atlantic charge to break-even on a full flight? Find the break-even ticket price algebraically.

Answer 1

a) Break even point=Fixed Cost/Contribution per unit.

Assume break-even point as x.

Given, fixed cost=$30,000 and price per ticket=$200 of which 50% is variable. So, contribution per ticket=200*50%=$100

Thus, break-even point=30,000/100=300 passengers

b) Since break even point is 300 passengers and current capacity is 240 passengers, there will be a loss if 240 passengers are carried by the aircraft.

Loss=240*100-30,000=$6,000

c) Assume break-even ticket price per seat as x.

Break-even price=fixed cost/contribution per passenger

x=30,000/240*0.5

=30,000/120

=$250 per seat